Diving into the world of property investment can be both exhilarating and daunting. With the potential for considerable returns, it’s tempting to jump right in. However, it’s essential to be aware of common pitfalls and arm yourself with strategies to navigate them.
Here’s a guide to help you avoid four common mistakes when buying your first investment property.
1) Poor Cash Flow Management
Understand Initial Costs: Before even looking at properties, familiarise yourself with the initial costs associated with buying. This includes stamp duty, legal fees, and inspection costs.
Anticipate Ongoing Expenses: Owning a property isn’t just a one-time purchase. There are ongoing costs like council rates, water bills, insurance, and potential repair costs. Setting aside a contingency fund may save you from financial stress down the line.
Budgeting is Key: A detailed budget will be your roadmap. It helps you identify potential financial challenges and address them proactively. If budgeting isn’t your strong suit, consider seeking financial advice or using budgeting tools and apps.
2) Falling For Rental Guarantees
The Allure of Guarantees: On the surface, rental guarantees — where a vendor promises a specific rental income — seem attractive. But it’s crucial to dig deeper. Often, the cost of these guarantees is embedded in the property’s purchase price. This means you might be paying a premium without realising it.
Market Rate Comparison: Always compare the guaranteed rate to current market rates. If the guaranteed rate is significantly higher, be cautious. When the guarantee period ends, you might struggle to attract tenants at a similar rate.
3) Risky Off-the-Plan Purchases
Potential Savings vs. Risks: Buying off-the-plan may be more affordable than buying an existing property. However, it’s essential to be aware of the associated risks.
Delays in construction can affect your financial plans, especially if you’re paying rent or another mortgage while waiting. Another potential problem with buying off the plan is that you can run into issues with securing finance. Some lenders may offer conditional approval (finance in principle) for off-the-plan purchases before construction starts, but they won’t actually loan you the money until the property has been constructed and they have performed a valuation on the finished product.
Valuation Changes: The property market can be volatile. By the time your new property is ready, its valuation might differ from your purchase price, affecting your loan-to-value ratio and potentially increasing your loan costs.
4): Trying to Do It Alone
Understanding all the ins and outs of buying a property can be tricky. From finding the right property to suit your investment goals to securing a home loan that meets your specific needs, the process can be a bit of a minefield.
That’s where we can help. As a mortgage broker, we can do the hard yards for you, from explaining your borrowing capacity and creating a purchasing budget, to providing professional advice about the right loan product and structure for your specific financial situation and goals.
Ready to start?
If you’re keen to start your property investment journey with confidence, reach out to us. We’re here to guide and support you every step of the way.